The United States House of Representativesā Financial Services Committee is set to take a historic step this week as they hold a hearing to discuss the role of stablecoins in payments and the need for supporting legislation.
Stablecoin Moratorium: USDC Depegged, $3B Liquidity Gap Revealed
The landscape is undoubtedly looking very different since the Committee last introduced a draft bill in September of 2022. After the midterms pushed back the passage of the draft legislation, the USDC stablecoin recently depegged from the US dollar amid the collapse of its reserve bank, Silicon Valley Bank. The collapse revealed a $3 billion liquidity gap that was suspected to have been caused by ill-advised investments into crypto derivatives.
The draft bill once secured bipartisan approval from both Democratic Representative Maxine Waters and Republican Representative Patrick McHenry, calls for a two-year moratorium on algorithmic stablecoins and requires Federal Reserve approval for nonbank issuers and approval from the Office of the Comptroller for the Currency for bank issuers. The bill also allows for the Federal Reserve to establish standards for interoperability between stablecoins.
Unified Stablecoin Bill: Focus of 113th Congress
Looking to remove any doubts created by the SVB Collapse, committee chair Maxine Waters and Senate Banking Chair Patrick McHenry have made it clear that a unified approach for a new stablecoin bill is the focus of their attention in the 113th Congress. Other public figures have also begun to emphasise the need for due diligence when issuing stablecoins, with Representative French Hill noting to Fortune that, āBy not developing that framework, where everybody knows the rules of the road and we can encourage digital asset innovation, weāre going to disable that market here, and itās going to move offshore.ā
Decentralization Warning: Foreseen by Disparte
This warning of decentralization has become a major theme amongst members of the House as they move to consider and adopt legislation. A decentralization that was predicted by Circleās Chief Strategy Officer Dante Disparte months before the SVB collapse, having tweeted on February 15th that, “ā¦laws in Singapore and Japan will, if applied in the U.S., give the Federal Reserve oversight of stablecoins and allow them to keep reserves in the central rather than a retail bank.ā
Uncertainty Settles as Stakeholders Await April 19th Hearing Outcome
The upcoming committee hearing on April 19th which includes Disparte as a testifying panel, gives the situation an added urgency. As the dust from the FBBC collapse begins to settle, Circles itself and the entire stablecoin industry looks for the outcome of the hearing to bring much needed clarity to the uncertainty endured, and pave a way for potential cooperation between all stakeholders.
Given the stakes involved and the implications of the billās support or rejection, all eyes are turning to the House and Senate this week, as the U.S. financial services industry prepares to face the brave new digital worlds of stablecoins.
Disclaimer: Cryptocurrency trading involves significant risks and may result in the loss of your capital. You should carefully consider whether trading cryptocurrencies is right for you in light of your financial condition and ability to bear financial risks. Cryptocurrency prices are highly volatile and can fluctuate widely in a short period of time. As such, trading cryptocurrencies may not be suitable for everyone. Additionally, storing cryptocurrencies on a centralized exchange carries inherent risks, including the potential for loss due to hacking, exchange collapse, or other security breaches. We strongly advise that you seek independent professional advice before engaging in any cryptocurrency trading activities and carefully consider the security measures in place when choosing or storing your cryptocurrencies on a cryptocurrency exchange.
